lease option to buy

It would appear the market is changing, these changes will require both seller and buyer to adapt. The seller must realize that there will be more competition in the marketplace as more homes hit gets listed “For Sale”. Price will start to play a bigger role than the condition and location. Expect to see more listing prices being reduced and expired. Buyers have to realize they are not going to “steal” any homes as far as pricing goes. At least not yet, because now the buyers are still out there looking but taking their time and they have more choices.

The idea came to me when I have a caller who asks for my advice to see if I could lower his payments by refinancing his property. Here is their situation, they purchase a property less than a year ago with no money down, and got a two (2) years fixed rate mortgage that they could not afford from the start. Their loan agent promised them that they could refinance and get their payments down within a year. Two things happened here when that loan agent said that statements, one is either that person is so smart that he or she could predict what will happen to interest rates and home values within a year or that person is flat out just saying that to close this loan. You figure it out, on top of all this the loan carries a prepayment penalty for both loan.

Anyways, I calculated his options and checked the property value. I am hitting a brick wall, cant do any better on his payments due to interest rate now are higher. The property value has not risen enough to make a 90% combined loan to value due to the prepayment penalty to be added to the loan balance.

I then remembered that I have a client who is currently working on getting their credit cleaned up and in the process of saving up money for closing cost. T hey makes over $9000.00 a month and can afford$3000.00 payments. I heard a light bulb lit up in my mind and thought that maybe somehow I could put both of them together and make it work for both.

I am suggesting to the owner of the property to sell because even if I can help him with refinancing, in six months time he would be back in my office asking me to do the same for him and now he would live mortgage to mortgage sacrificing just to be above water. I then called the callers who are currently trying to save money and work on improving their credit and see if they might be interested in a lease option to buy. How this works is, they would take over the existing payments of the seller without going thru an escrow; a lease contract is signed thru an agent for a minimal fee paid by either the buyers or sellers. Without having to apply for a new loan, once agreed the buyers can move in and continue making payments for the sellers until a given time on the contract. Then should the buyers apply for a new loan to release the sellers from the mortgage responsibility.


Facts about lease options for sellers:
1. The seller might be able to avoid paying a prepayment penalty if the contract due to be exercised after the prepayment period.
2. The seller depending on the contract might walk away with some money.
3. The seller needs to monitor the payment of the buyers because the loan is still under the sellers name until the buyer refinances the loan.
4. The seller minimizes commission and closing cost paid to agents and escrow companies.

Facts about lease options for buyers:
1. The buyers will be able to avoid having to qualify for a loan regardless of credit situation, because they might just need to take over the existing loan of the seller.
2. The buyers will be able to avoid paying high fees for closing cost.
3. The buyers must be able to afford the payments of the mortgage, tax and insurance to be proven to the seller to avoid delayed payment on the mortgage loan.
4. If the buyers have poor credit but can afford the mortgage payments, they would have the time to re-establish their credit prior to applying for a loan in the future to fully own the house outright.


As easy as it sounds, this might be a harder task than meets the eye. The match has to be perfectly beneficial for both parties. A lot of communication would have to be going on even after the contract has been exercised.

Warning: Be careful with applicants just wanting to take over your payments and move in. They could move in sign a contract with you, but never pay the lender and you will be responsible as far as the lender is concerned because they never took out a loan under their name. If they did, it would not be called a lease but a regular conventional transaction.

Advise: Employ a professional to handle and negotiate the transactions and ask for some kind of good faith deposit to show interest from the buyers. Remember, they should be releasing the sellers from the payments only but not the responsibility.

Short Sale Deficiency Judgements

Will I be liable for the deficiency balance on my defaulted mortgage balance?

Caller: My property was foreclosed 6 months ago and I am still getting a bill for the mortgage balance of my property. What can I do about the debt? The bank already sold the house to another buyer.

Ken Go: That is what happens if you let your property go to foreclosure, you did not request for debt forgiveness and the lender is after you for the deficiency judgment. Meaning, if you owe $500K on your property and the lender after paying all the fees, interest, legal and agent fees net about $400K only, you will owe them $100K. I am advising my readers to consider a short sale after failing to modify their loans and rates, and letting the property go into foreclosure as a last resort. Think about it, if you let go of the property just like that, the bank will have to wait for the legal process to kick in before taking over the property, that means you would have incurred legal fees, let alone the wait time that is wasted due to the process of bank take over. Then, the bank will also hire an agent and pay their commission to sell the house, all those cost of the bank selling will also go on your bill. So, you basically just increased your debt balance and hopefully your property is not damaged or vandalized where there will be again incurred cost, because again you will have to pick up those cost. Therefore, do I make sense when I say lets short sell it and ask the bank to accept a smaller payoff? What to do then, maybe talk to the lender to discount the balance if you have money to settle, or talk to a lawyer as far as how to avoid the debt.

Caller: I wrote about this caller a few weeks ago, who wanted me to help her request for a loan modification, she is $18K behind and have no way to pay the debt off to be current. I assisted in calling and providing the lender with the necessary documents to have her loan modified. Just recently the lender approved her modification package. What they did was they put the loan balance of 18K on top of her loan and kept her rate and increased her payments by about $100.00. I her case, she wanted to keep the house and has the ability to pay her mortgage but not to bring the loan current, so this will work out for her and now she wont have to worry about the 18K debt.
She got an advice from someone saying that don’t pay your mortgage for 2 months before calling the lender and asking for a loan modification. Problem is the 2 months quickly became 6 months and now she can’t keep up. So, before you get an advice make sure that person is qualified to make comments.

Caller: I was defrauded by a countryman, I was behind on my home that I owned for 18 years and was lead to believe that this person was going to use a straw buyer (fake buyer) to buy that property back for the caller. The Agent requested for $10K as an escrow deposit for the supposedly straw buyer. After a few months of communication with the agent, he suddenly stops calling. When chased after, the office has no record of the escrow ever being opened. What should I do? My home was foreclosed because I have a notice to move already and the bank won’t talk to me any more.

Ken Go: At this point, you have to report that agent to Federal Trade Commission, www.ftc.gov or call 1-877-ftc-help. I can’t even tell you if you will ever get your money back. I would report them to the local authorities too. Unfortunately, as far as your house, since the Trustee sale occurred you are out of options. Best is to report this person to avoid other people to fall for their scams. This is by the way a Federal offense for those who are getting ideas about scamming other homeowners.

Caller: I was approach by a lawyer’s office to who wanted to help me do a loan modification with my houses that I have. I own a vacation that is still ok but due to my interest rates being high, I might not be able to afford it anymore. I refinanced my home to be able to buy the vacation home and my current residence also has a high interest rate that I am paying.

Ken Go: Before paying someone $2-4K to help you do loan modification, take note of these things. There are non profit agencies out there that will help you negotiate with your lender for free. You can also do that yourself, of course when you have to do it yourself you have to be patient and much disciplined to follow up on those calls and documents the lender might require. But for you that could save you $5K, don’t you think it’s worth it, having a Law Office behind you doesn’t always mean success? My suggestion is for you to try to sell the home and at the same time request for a loan modification, vacation home you can’t afford is not a vacation home. If you sell see how much money you will have saved not having to pay the mortgage on that property, truthfully how often to visit your vacation home? Be frugal, now is not the time to spend carelessly. There was an article about a Law firm that targeted Filipino homeowners in distress and they were soliciting for Loan Modifications. I believe they are knee deep in trouble with the Law and I am curious to see how they get out of this mess.

If you have a Freddie Mac or Fannie Mae loan there is a Making Home Affordable program that you might qualify for, please inquire with us. I have seen rates as low as 2% approved for 5 years from this program.

Loan Modification Frustrations

Frustrated with all the people I am talking to about “LOAN MODIFICATION”!

Caller: I am trying to find a way to lower my payments, our loan currently is going to adjust by 25% come November 08’. At this point I am already having a hard time paying the mortgage, what should I do. I heard about “Loan Modification” and have been trying to do that for two months but am not getting anywhere? I also talked to someone wanting to charge me $3000.00 for doing this for me.

Ken Go: First of all, I am repeatedly telling everyone that you should not pay anyone to help you deal with your lender or do a “Loan Modification”. There are government agencies and non-profit organizations that will help you do it for FREE. The key question here is whether you are currently late on your mortgage when you are calling your lender for a “Loan Modification”. If you are still paying them, they will more than likely not agree to help you, because currently there are about 7-8 thousand people going into foreclosure everyday nationwide. So, they will prioritize the customers that are already late, but don’t get discourage because you should still try and see if they will agree. Another thing to consider is if you can qualify for your own loan, meaning if you add up all your mortgage payments including taxes and insurance, revolving debts and installment debts, is your family income double that amount? If not, they are again most likely going to decline your request. They will tell you that you cannot qualify for your own loan, if they help you; they are thinking that it will be temporary and you will be back in the same situation 6 months down the line. So, be honest and explain to your lender how you are able to afford the payments, if you have relatives living with you helping pay the mortgage, disclose all your part time jobs. Lastly, remember to try and complete the financial package with a hardship letter explaining all your problems. Remember, these lenders are overloaded with call all day long and try to be nice to get your way. If will get frustrating that is why you have to keep trying. Also, if you put yourself in their position, they can tell you that you have signed a legal and binding contract when you took that loan out, when you cashed out money to buy your new car, when you did your home improvements or paid off your other debts that you agreed to pay them back. So, they really don’t have to help you but might. So, we are at their mercy and have to do things their way and hope for the best.

Caller: I can’t refinance my house and my loan payments are going up to a point that I cannot afford it anymore. What should I do?

Ken Go: This is a growing epidemic that is out of proportion and I get calls like this all day long. My suggestion: get your finances together be honest with yourself and see what your actual monthly expenses are, include everything even your snacks, your small vices everything. Then put down how much you are netting from your pay stubs and you will be surprise to know that you are just living on the edge every month with your paycheck. If you cannot afford the house, then you have to really decide on other options to keep yourself afloat. See yourself six month to one year from now, even if you have a fixed rate loan, can you really afford the payments? If not, then be honest and sort out options. Treat this home buying experience as a business, its not personal definitely not sentimental.
Caller: Mr. Ken Go, you are claiming that you don’t charge anything for the advice and the appointment. Right there I might have to be cautious because you said yourself nothing is free in this world?

Ken Go: Great question! I spend about 15-30 minutes explaining to a customer all these things about loan modification. I have been in the business for over 20 years and fortunately have many loyal customers that continue to refer me with clients who might want to buy,sell or refinance a house. If you are following my articles, about two years ago, I have been writing articles about “NO DOWN PAYMENT LOANS’ that the borrowers should not do that because its too risky, I have telling my callers not to buy homes since close to two years ago. Why do I do that, because I honestly find satisfaction and a sense of pride doing that? I feel that I want to do that to sort of give back to the world the blessings I get. Do I need to make money, of course I do. Let me ask you something, if I give you a good advice and honest one, later if you need some financial or real estate services who would you think about calling? Hopefully Ken Go, right? That is pretty much what I asked for are referrals on people you know that might need my services. I think that is more than fair, my business is a referral business. I do get a lot of thanks and promises of referral from my callers and basically being in this business this long; I can wait and will continue to give free and honest advises to whoever might seek for it.

Emotional Stress of a Short Sale

What a seller is to expect in a Short sale
I started talking about Short Sales about a year ago. The Short Sale transaction can be frustrating for everyone involved. I think most of the frustration comes from expectations not being met. The short sale is not your every day real estate transaction. This is relatively new territory for most real estate agents and definitely a new venture for the seller. This should be one of your last resorts. Talk to your bank. You might be able to renegotiate your mortgage. Again, back to my point banks don’t want to own real estate, they just don’t realize it yet. They are going to fight you tooth and nail to keep the current condition and hope you find a way to pay. A well trained real estate agent in foreclosures and short sales will be able to assist you in this process.
There are a few things that you should be prepared to do before venturing into a short sale transaction. The bank has to qualify you for a short sale. Remember, they are going to ultimately take a loss on this. Therefore, you have to establish a hardship, if they approve, they will pass this short fall onto you as a 1099 at closing. The IRS sees this as income to you and expect you to pay taxes on it. (Tax laws are changing on this regularly, check with your Tax preparer) You might not have to anymore.
Your agent will be needing a copy of a few things from you to help streamline the whole process.
Authorization to talk to you lender(s)
Most recent mortgage statement.
Most recent tax return.
Two most recent pay stubs.
Bank Account Statement(s)
A Hardship letter written in your own words.
The banks will want to see these items in order to consider your request. If there’s a second mortgage, most likely both will have to agree on a settlement before approving the short sale. Remember you agent will do their best to get the approval, but there’s no guarantees that they will accept it. It is not uncommon for one or the other lender to force it to foreclosure. The loss mitigation department sometimes have a mind of their own. They have secret formulas that they use to determine which route is more beneficial to the bank.
Your sellers agent will submit this again with another pile of documents when an offer comes through. It makes it easier on the Loss Mitigation Officer to see everything at one time (again or maybe for the first time) They have hundreds of these request coming across their desk monthly. The more your agent is organized, the quicker the response time to the sale approval. I say quicker with a little tongue and cheek. The approval process could take anywhere from 30-60 days. You don’t need any more delays than that. Especially if the foreclosure process is closing in on you. Buyers and Buyer’s agent need to be aware of this. We’ll talk about their expectations next week.
This is an emotional process, your agent should be able to help keep things in perspective and work through the hiccups of the transaction. Ultimately, you want to get someone who understand your situation, very patient and has your interest.
Watching out for your deficiency waiver and credit are both very important issues that an agent has to address. I just ran a credit on a short sale that I closed, this client had about a 720 Fico prior to the short sale, once we had closed the short sale. Their credit dropped to around 650, and both 1st and second loan showed “Account Settled”, which is what I negotiated for and got. I am very happy with the turn out of this clients credit. However, any foreclosure or short sale they will have to wait three years to be able to get another home loan.

Mortgage interest rates for 30 years @ 4.25%

Mortgage rates have been pretty steady the past few months, but recently since the market being so volatile, money was moving from stocks to bonds. The effects of that was the 10 year Treasury bonds dipped below 3% as low as 2.95%. Which has a direct effect on our mortgage rates, now the 30 years mortgage rates dropped to 4.25%, all time low. I have been in the business going on 23 years and i have never seen rates this low. Now, qualifying for these rates is another thing or getting these rates would require for the homeowners to be in a certain credit status and debt to income ratio to qualify.

Here are what is typically a qualified customer for these low rates:
* Property to be owner occupied.
* Loan amount under $417,000.00.
* Credit Score minimum @ 740 unless the loan to value ratio is less than 70%.
* Debt to income ratio needs to be below 45%, meaning all your debts ( Revolving & Installmend + PITI ) added up and if you divide it with your groos income, it should not exceed 45%.
* Employment history has to be in line with Fannie and Freddie guidelines.
* Cash out transactions will depend on the loan to value ratios to qualify for these rates.

If you happen to fall into these qualifications and guidelines, you should get these rates with no hassle. However, being in the loan business this long, every loan is different and there are no two loan that are similar.

Please CAll to see if you qualify for these rates and for free consultation, call anytime : 800-508-7048.

Here are some other great rates i would like to share with you :
15 years fixed rates : 3.75 %

5/1 ARM (Initial rates fixed for 5 years then this will turn into a adjustable) : 3.125%
7/1 ARM : (Same as above adjustments) : 3.5%
10/1 ARM (Same as above adjustments) : 3.77%

LOANS OVER $417,000.00
30 YEARS FIXED RATES : 4.625%
15 YEARS FIXED RATES: 4.125%

7/1 ARM ( Initial rates fixed for the first 7 years then will turn into an adjustable ) : 3.875%
10/1 ARM : 4.25%

These rates are all carrying .75% for conforming loans and .50% for jumbo loans.
Guaranteed fees: $ 695.00 processing and $ 780.00 underwriting ( in writing ).
Appraisal Fees : $ 340 or $ 390 depending on the loan amount. CAll for appraisal specials.

What can tenants do when the owners are no longer paying the mortgage?

What can tenants do when the owners are no longer paying the mortgage?

I hope this would be the last stages of the foreclosures that are occurring in our state. I had predicted that the past 3-6 months might have reduce the homeowners with Sub-Prime loans that are going into foreclosures. But we have a new problem here in our state, which is “Unemployment” and that has been the leading factor for this new trend of homeowners not able to pay their mortgages.

For homes that are tenant occupied, here are some Recent Laws:

Helping Families Save Their Homes Act of 2009 ----
1) Federal Law took effect May 20, 2009.
2) Law requires that for any residential real estate foreclosure, the immediate successor in interest to the property (i.e. foreclosing lender or third party purchaser) to send a Notice to Vacate effective at least 90 days after the date of the Notice to the “bona fide” tenant.
3) To be a “bona fide” tenant All of the following must be met:
a. The tenant is not the borrower, former owner or their immediate family member.
b. The lease or tenancy was an arms-length transaction, and
c. The lease or tenancy requires that rent that is not substantially less than fair market rent, unless subject to federal, state or local rent controls.
4) Additionally, the Notice must advise any tenant that entered into a “bona fide” lease of the tenant’s right to occupy the property through the end of the lease term, unless the successor in interest intends to use the property as a principal residence in which case the 90 day Notice would still be in effect.
5) Notice must still be given, but Successor in interest is not required to abide by the terms of the lease if it was oral: month to month; set to expire within 90 days after the foreclosure sale; entered into subsequent to receiving the first foreclosure notice.

California Foreclosure Prevention Act --- effective June 15, 2009
1) The lender must wait an additional 90 after the expiration of the three-month waiting period before a Notice of Sale can be filed if ALL the following conditions are met:
a. The loan was recorded from January 1, 2003 to January 1, 2008;
b. The loan is secured by a first deed of trust; and
c. The borrower occupied the property as the borrower’s principal residence at the time the loan became delinquent
2) It is possible for a lender to receive an exemption from the new law by implementing a comprehensive loan modification program that is approved by either the Department of Corporations, the Department of Real Estate or the Department of Financial Institiutions.
3) This law is set to remain in effect from June 15, 2009 to January 1, 2011.

So, far Loan Modifications for homeowners in need of such assistance has proven to be unsuccessful, lenders are prolonging the foreclosure process, which in tern could either help the homeowners find other sources of income to come up with the mortgage payments or for them to wait for better modification solutions in place compared to what is available.

I believe and repeatedly explain to my callers that in order to understand how a Bank/Lender can help you, you should see the big picture and not get emotional or personal about this. Banks will always put themselves ahead of you, remember that. Therefore when you are calling a bank to ask for help, remember here are the reasons why they should or can help you:
1) Your loan is a “Negative Amortization Loan”, these loans are called the “Teaser Loans” the banks are trying to get rid of these types of loans as fast as they can.
2) You have a predatory loan ( loans rates that are either short term adjustables or high interest yielding fixed rates ).
3) You qualify for hardship for hardship due to some of these major factors:
a. Death in the family.
b. Lost of employment or reduction of employments hours.
4) The key factor why a bank would want to help you is that they have to see that you can make your payments once they have decided to modify your loan. They need to see the “Ability to Repay” the debt. They will calculate your possible lower rates including the taxes and insurance to assure these obligations paid consistently every month. Otherwise, once after the trial period you might fall back into the same scenario and not able to pay again.

By understanding how the lenders sees you as a borrower that will eliminate a lot of confusion about why lenders would rather foreclose rather than modify. Another major factor is that your lenders ( BOA, Chase or Wells Fargo ) to name a few might not be the actual “INVESTOR” of your loan, they might just be servicing the loan. That means any type of modification to the original note has to be approved by them.

How to pick your Mortgage Broker.

Banks might be taking too long or not returning your calls, right?

If you are looking for a mortgage, you may have been advised that it’s better to go through a mortgage broker.Now a days if you are still in the business, you must have done something right, because the downfall of the SubPrime Loans has weeded out a lot of the bad brokers in our business. This seems to make sense because most major lenders (ALL THREE OF THEM) will take an average 45 days to close a loan, forget about getting pre-approved or a return call, they are so busy that they cannot handle the work loan. Brokers are experts, aren’t they? This is generally true. But it doesn’t mean that you have to accept everything the broker says, or be completely uncritical. There are some things you need to look out for.

At one time just about anyone could set up as a mortgage broker.


All brokers are supposed to offer advice and a recommendation. Beware of a mortgage broker who claims only to offer information. This may be to forestall potential complaints.

Be extremely wary of a broker who encourages you to bend the truth in order to get the mortgage you want. It’s part of the mortgage broker’s job to make sure you get a mortgage which you can afford and which is right for your circumstances.

Some mortgage brokers will tell you that they are “whole of market” when they only in fact have access to a representative panel. This may not necessarily be a bad thing in itself, but you should be careful of a broker who you think is trying to mislead you. Check just how many lenders the broker has access to.

A mortgage broker who works on a commission basis may seem cheaper. But can you really be sure that the broker is recommending the product that is best for you, rather than being swayed by the commission? Of course most brokers are honest and genuine. And they are actually bound by their professional code to give the advice that is in the client’s best interests. But if this is a worry for you, choose one that operates on a fee basis.

If you do use a mortgage broker who operates on a fee basis, avoid one who expects you to pay the bill before completion of the transaction. This can cause problems if things change or break down later on. Check at the beginning when the broker expects the fee to be paid.Always remember you are the customer. Don’t let yourself be over-awed by the broker’s expertise. A good mortgage broker will always be happy for you to check everything and ensure that everything is being done in your best interests.

Most important advise for you to follow, get all the fee and rate quotes in writing and make them guarantee it. WE CAN! WE CAN CLOSE IN ABOUT 15 WORKING DAYS TOO!